What is Cost Per Acquisition?

In marketing, cost per acquisition (CPA) refers to the total expense involved in converting a lead during a campaign. While some businesses define an acquisition strictly as a sale, others take a broader view, including actions like clicks or newsletter sign-ups.

Note: 

CPA is a crucial metric for evaluating marketing performance, but it differs from customer acquisition cost (CAC). CAC calculates the overall marketing investment divided by the number of new customers gained over a specific time frame, giving a general view of customer acquisition costs. In contrast, CPA focuses on the cost of specific conversions.

The Formula for Cost per Acquisition

Why is CPA important?

Efficiency

CPA helps businesses allocate resources wisely, allowing them to compare campaign performance and optimize spending.

Clarity

It highlights whether the cost to acquire customers is profitable, revealing if adjustments in marketing or pricing strategies are needed.

Growth Indicator

A lower CPA signals a business is ready to scale without excessive costs.

Budget Planning

CPA provides objective data to set realistic marketing budgets.

Which factors affect cost per acquisition (CPA)?

Marketing Channel

The marketing channel you select can greatly influence CPA. Various channels—such as pay-per-click (PPC), affiliate marketing, social media, and content marketing—come with different cost structures. The level of competition and demand within each channel can also affect CPA. For example, content marketing might yield fewer immediate conversions but can build long-term brand awareness effectively.

Budget

A smaller marketing budget combined with a focus on high-conversion digital strategies usually results in a lower CPA. As your budget increases, CPA might also rise because the expanded budget may fund campaigns and channels with lower short-term conversions but potentially better long-term outcomes.

Definition of Acquisition

Typically, CPA refers to the cost of acquiring paying customers or achieving a sale-triggering action. However, some businesses broaden this definition to include clicks, downloads, app installations, newsletter signups, or direct mailing list additions.

How to Reduce Your Cost Per Acquisition?

Increasing the number of sales a campaign or channel generates can help lower your CPA, though this isn’t always straightforward. Here are some strategies businesses can use to boost conversions and decrease CPA:

1. Personalization

Utilize customer data to create tailored marketing materials—such as personalized emails, product recommendations, and targeted discounts—that cater to individual preferences. Customized ads typically have higher click-through rates (CTR) and can reduce overall ad spend.

2. Landing Page Optimization

Landing pages play a crucial role in conversions since they’re the first thing customers encounter after clicking an ad. The most effective e-commerce landing pages are designed with a specific target audience in mind, focus on a single call to action (CTA), and provide just enough information to prompt a purchase.

3. Streamlined Checkout Process:

A significant 68% of online shoppers abandon their carts before completing the checkout process. Common reasons include unexpected fees and cumbersome checkout pathways. To combat this, ensure total purchase costs are transparent before the checkout page and create a smooth, efficient checkout flow with minimal steps.

4. Identifying Purchase Intent

Surveys asking “How did you hear about us?” can help pinpoint the effectiveness of different traffic sources (search engines, social media, etc.). If certain sources show lower conversion rates, you can adjust your marketing budget for those channels.

5. Retargeting

Retargeting enables businesses to reconnect with potential customers who leave their sites without making a purchase. Shoppers who abandon carts are often more likely to convert than those who never add items to their carts. You can use retargeting techniques, such as sending personalized reminder emails with promotional codes or running targeted ads, to re-engage these users.